The importance of regulatory streamlining to economic inclusion hasn’t always been apparent. Lately, however, its relevance has been coming into greater focus.
Last week, a Senate subcommittee held a hearing on occupational licensing laws, which require government-issued licenses to perform certain types of work. (The hearing followed up on a White House report last summer that found that occupational licensing requirements have increased five-fold since the 1950s and can complicate access to even low- and mid-skill professions).
Likewise, last week also saw Twitter light up over a Wall Street Journal story on the rise of so-called non-compete agreements, not just in intellectual property-driven fields such as engineering and high tech, but also in journalism and even fast food. In that latter case, the Journal reported that the Jimmy Johns sandwich chain has been requiring some employees to sign agreements that bar workers from taking jobs in other nearby sandwich shops. Numerous scholars including Matt Marx and Evan Starr have concluded that such employment agreements hinder job switching, hurting workers’ bargaining power.
What do these issues have in common and why should they matter to those concerned about economic and social vitality in America’s regional economies? We have been thinking about that question for a while this winter given our work developing a growth strategy for the state of Rhode Island, and have a few thoughts.
Rhode Island, we found, has substantial growth and inclusion problems that likely stem in part from its burdensome regulatory structures.
According to the libertarian Institute for Justice, Rhode Island is an onerously licensed state that licenses (often with heavy entry barriers) nearly half of 102 low- and moderate-income occupations—notably more than most states. Rhode Island cosmetologists, for example, must undergo 1,500 hours of training while in neighboring Massachusetts they need only 1,000 hours, while HVAC contractors must acquire over five years of experience—the most burdensome laws for HVAC contractors in the nation. Similarly, Rhode Island has stricter non-compete enforcement mechanisms than many other states, while its business start-up rules and local land-use regulations are also complex and onerous. Given these facts and the goal of getting the Rhode Island economy moving again, we have recommended that the state step up its reforms of heavy-handed occupational licensing rules, reduce or eliminate the restrictions of its non-compete rules, and take statewide an effective e-permitting pilot. But we also made these recommendations with an additional goal of promoting greater economic inclusion in Rhode Island. With its high poverty rates and large disconnected minority populations the Ocean State needs to make it easier—not harder—for people to enter professions and gain increased wages.
Yet the problem of excessive rules that sap both economic vitality and individual opportunity is far from confined to Rhode Island. Most states contend with such regulatory problems.
Which is why it is a good thing that regulatory reform appears to be gaining traction nationally as a socially as well as economically beneficial agenda—one that speaks to a spectrum of conservative, libertarian, business, and progressive concerns about growth and inclusion in local economies.
Reforming regulatory regimes like occupational licensing, incorporation rules, and non-compete agreements responds, as 538’s Ben Casselman notes, broad concerns about the long-term ebbing of U.S. and regional business dynamism. Each of these regulatory regimes can slow growth, stymie entrepreneurship, and constrain the idea flow in regional industry clusters that comes from job-hopping. But regulatory reform in the job market also relates directly to the growing reality that it’s too hard for low- and middle-income people to get ahead in the United States. In this regard, economist Morris Kleiner has taken the lead on the vexing problem of occupation licensing and provided an excellent blueprint for policymakers to follow in his recent Brookings piece.
Given all of that, reforming anti-worker, anti-entrepreneur rules looks like a vital and practical starting point on larger reforms. As Casselman writes: Such rules aren’t “the only explanation for [lost business and labor market vitality, and perhaps [aren’t] even the main one[s], but they may be the one[s] most easily addressed by policymakers.